A public diary on themes around my books

May 05, 2009

A tragic tale of Free gone horribly wrong

Jon Lund, the head of the Danish Internet Advertising Bureau, and I had dinner in Norway last week and he told me the chilling story of the crazy free newspaper war in Denmark that almost killed everyone involved. I thought it was an important cautionary tale of Free gone wrong, and I encouraged him to write it up on his blog.

He did, and it is indeed grim reading. I’ve excerpted (and lightly edited) the basic story below, but it’s worth going straight to the source to get Jon’s analysis, along with a lot of links to other reports on this disaster.

Short form: the attempt by a half-dozen newspaper publishers to “out-free” a free Icelandic paper that entered the market (backed by Morten Lund, who made a fortune as an early investor in Skype) ended up costing the collective newspaper industry in Denmark more than $150 million dollars and the bankruptcy of three newspapers.

Morten Lund has also been chronicling this disaster, confessional style, on his blog (see here and here).

And yes, this all started with the same Icelandic investors who helped take down the world economy.

The Popping of the Danish Free Newspaper Bubble

(everything from here on is from Jon)

“Double free”On October 6 2006 “Nyhedsavisen”, a new Danish daily newspaper hit the streets. A quality newspaper staffed with 100 journalists and ambitions of being the largest Danish newspaper with a daily circulation of between 500,000 and 1 million readers (total Danish population equals some 5.5 million). The newspaper would feature an editorial mix prioritizing both prize-winning critical journalism and stories close to the everyday life of ordinary Danes.

The pricing of Nyhedsavisen was simple: it was free. And, as something entirely new: it was going to be delivered to the homes of all Danes – at no cost. Not only the newspaper itself was free, delivery was free as well. It was in effect “double-free”.

The front-page of an October 2006 edition of Nyhedsavisen

Icelandic intrusionBehind the Nyhedsavisen launch was the Icelandic media group Dagsbrun owned by Icelandic investment company Baugur group. During 2005 Dagsbrun had researched the European market in order to find the most suitable country in which to try to duplicate the success of Icelandic newspaper Frettabladid. And Denmark was chosen.

Frettabladid was founded in 2001 and had managed to be the best-read newspaper among the Icelandics (total population: 320,000) battling the only other Icelandic newspaper Morgunbladid by employing for the first time the “double-free” model.

The business modelNyhedsavisen aimed at having three different revenue streams, the first one being the traditional newspaper model, where advertisers pay to have ads in the newspaper. If you’re able to get 1 million Danes to read your newspaper, you’re able to sell those eyeballs to advertisers as well.

The second revenue stream also aimed at advertisers, but not by offering advertising in the newspaper itself. Instead, Nyhedsavisen would take advantage of the fact is had a direct contact to all Danish households before 7:00 in the morning. Nyhedsavisen would take what would normally have been a cost – the distribution – and turn it into an independent revenue-stream, making money from distribution of printed advertisement catalogues and brochures alongside the distribution of Nyhedsavisen itself.

The third revenue streams would stem from the other Danish media. Out of the 100 journalists, 35 were employed at the news network part of Nyhedsavisen, a bureau in the newspaper which should deliver and sell news wire services to other Danish media.

Flooded with newspapers Nyhedsavisen thereby aimed to compete with the entire existing Danish newspaper industry, including the three large nationwide dailies Berlingske Tidende, Politiken and Jyllandsposten, the two nationwide tabloid-papers Ekstra Bladet and BT and the existing free daily newspapers delivered through public transportation or handed out on the streets, MetroXpress and (Berlingske owned) Urban.

And all of these took the threat seriously, and decided to fight the intruder in an attempt to defend their position on the Danish media market.

Right after the initial announcement of the double-free newspaper, Berlingske Tidende (the oldest Danish newspaper, first published 1749) answered back launching their own “double-free” newspaper, “Dato”. This they did on August 16 2006, some two month before Nyhedsavisen would eventually launch. This was Berlingske’s second free newspaper, the first being the “single-free” Urban (which again was launched in 2001 in response to the launch of MetroExpress).

The day before, however, the regional daily Nordjyske introduced two free newspapers on top of the paid daily Nordjyske. Centrum Miórgen was single-free, distributed in the morning traffic, whereas Centrum Aften was freely delivered in the afternoon in northern part of Jutland. The day after (August 17) the publisher behind Politiken, Jyllandsposten and EkstraBladet, JP/Politikens hus launched their double-free daily “24 timer”. And on August 21 MetroXpress launched an afternoon-edition in supplement to the usual MetroXpress morning edition.

When Nyhedsavisen finally arrived, Denmark was flooded with newspapers. On top of my paid subscriptions I’d now find both Nyhedsavisen, 24timer and Dato in my mailbox, and on my way to work I’d be able to read both Urban and MetroXpress in the metro. On my way home, I’d be able to read the afternoon-edition of MetroXpress.

The immediate effect of all this was twofold: the average Dane was getting weary of all the papers he suddenly was forced to have inside his home – and the price of print advertising went down in response the massive growth in supply.

Casualties and deaths This free newspaper war went on for over two years and caused the entire industry to bleed. On top generally declining circulation for all (paid) printed newspapers the cost of producing and distribution additional free newspapers added significant losses to the financial results.

Berlingske which was bought by British Mecom in early 2006 was barely profitable then decided in 2007 to back out of the war, closing down their double-free Dato, realizing a loss of $35 million. (Though Berlingske maintained their single-free Urban, continuing in the attempt to offer yet another free alternative to Nyhedsavisen).

MetroXpress shot down their afternoon edition after only three months, with losses of some $1 million.

After one year Nordjyske eventually also gave up on their Centrum Aften double-free, and merged Centrum Morgen with 24timer. (The Nordjyske engagement in the war however tried out a completely new initiative, editorially combining several print- and webtitles in a very interesting combination - for more see this post).

Show-down: Nyhedsavisen vs. 24timerThis left 24timer and Nyhedsavisen alone on the scene, trying to wear each other down. Nyhedsavisen were backed by the Icelandic investors, claiming they had “enough” money to carry on to the bitter end. In 2006, 2007 and 2008 the revenues of JP/Politikens Hus totaled a little more than $600 million, with losses of respectively $20 million, $25 million and $30 million each year, taking a quarter of the company’s market cap with it by 2008.

The costs of producing and distributing the double-free newspaper was - at least during 2007 - around $200,000 a day for each of the papers.

The free delivery was one of the main obstacles. It simply turned out for all of them to be extremely difficult to manage delivering the newspaper at peoples’ home before 7 in the morning. As a consequence JP/Politikens Hus gradually shifted the distribution of 24timer to the single-free handing out in the morning traffic. In March 2008 this shift was total.

This partial surrender from 24timer came after Dagsbrun/Baugur group in January found themselves forced to back out of the Danish market. Instead of abandoning Nyhedsavisen altogether, however, a new majority-investor, Morten Lund, entered the scene. Apparently 24timer didn’t find it necessary to keep up the pressure, reasoning a traffic-only existence would do enough harm eventually to kill Nyhedsavisen off.

In may 2008 24timer merged with MetroXpress. At that time Nyhedsavisen actually had managed to bring down the cost of delivery to some 20 cents per issue, only 25 percent more than the corresponding cost of distributing the newspapers in the traffic. But little it helped: on September 1, 2008 Nyhedsavisen was no longer able to pay its bills, and was declared bankrupt.

Today we’re left with but two remains from the Free Newspaper War: 24timer still lives on, partly owned by JP/Politiken. And the website of Nyhedsavisen - avisen.dk - has its own life, now under the auspices of Danish social network-publisher Freeway and a-pressen, the media division of the Danish Labour movement (!)

Could the “double-free” model have worked? Despite the fruitless attempt to prove the double-free business model during the two years of free newspaper war, the conclusion is not entirely clear. Surely it didn’t work. But it might have functioned under other, less hostile, circumstances.

Particularly: the revenue streams from the traditional newspaper-advertising model dried up for Nyhedsavisen due to the fierce competition on the media market in which the excess of supply ensured radically low prices. Also the markets suspicion that Nyhedsavisen might not be able to make it also discouraged media agencies from engaging in longer-term Nyhedsavisen-campaigns.

Also, the distribution services never got to work: At first Nyhedsavisen was planned to be distributed in a joint venture with Post Denmark, the official Danish Post, who – on top of their knowledge and professionalism in distribution – had access to an essential asset: keys to all doors of the houses in the large cities. The use of these keys, however, was deemed illegal by the Danish Competition Authorities (after JP/Politiken and Berlingske had filed their complains – while these two ironically entered into their own agreement on swapping keys with one another). Also the massive demand for paperboys to actually deliver all the free newspapers around Denmark caused severe problems for the distribution (all the players were forced to import immigrant-labour from primarily Poland, who then worked their way around Denmark by night, trying to make sense of the signs in the streets in order to figure out their routes in order to deliver the free newspaper in their trolleys correctly).

Taking into account that the third revenue stream – the news network delivering and selling news wire services to other Danish media – for various other reasons didn’t turn out a cash-cow either, Nyhedsavisen was in effect left with no revenues at all.

Comments

Well, I for one am happy the way it is in the Netherlands now… we have a bunch of free newspapers (Metro, Spits, De Pers and Dag) which are distributed at public transport hubs… Pretty happy with them, I can pick one up and read some news on the way to work. They also all have their own identity in the way they bring the news, so it’s not all the same press bureau boilerplate stuff. I personally prefer Metro. Though lately I also use my mobile phone a lot to read news. And at home we have a shared subscription on De Volkskrant which is a ‘real’ newspaper, offering more detail and is less on-the-go oriented.

But it seems the difference between the Danish free papers and ours is that they apparantly also delivered for free at your doorstep. That means that while in our system people take the paper(s) they want, in the Danish system you get all of them delivered to you. Seems less efficient. Also let’s not forget the big amounts of wasted paper, which isn’t exactly environmentally-friendly either.

Great read from Jon. I'm originally from Denmark and remember with the newspapers started 'raining down' on us. Now I'm in Guatemala and was lucky to get a ticket for Mondays Free Summit. See you there, looking forward to it!!

Errrr.... "same Icelandic investors the helped take down the world economy."
Do you really have the courage to assert this?
The "And yes" also indicates that you assume other people think like you. Really?
Wow.
Small town city councils, non-governmental agencies, retirement homes and social institutions investing in USA AAA+ rated assets. They truly showed a coordinated cooperative effort to shut down the world. On which they don't depend at all, of course.
I came here looking for progressive aware modern knowledge and I found a guru as intelligible as a fart.
Enjoy censoring me!

I am not sure how long we will ignore the writing on the wall or in the press..
Free is great, when it is connected to enterprise.
Enterprise is great, when it is connected to selling.
Selling is wonderful, when it results in profit.

Here's a possible path for financially-threatened newspapers and magazines to move towards sustainability…

In addition to a comments section, these ventures could add a “related predictions” space by each article or column for readers to make cogent (Twitter-like lengths) forecasts of specific events related to the article that they see unfolding over a three or six month period.

To make predictions, readers would pay a one-time or subscription fee to enter the prediction pool, bringing needed revenues to the publication.

The best predictors over time could earn karma points convertible to status or visibility. One reward for the most successful participants might be the opportunity to contribute an occasional guest columnist, after the precedent that Nicholas Kristof and others have set at the New York Times.

Another reward option might be to periodically highlight the best predictors in a “open forum” on trends in given fields, where they would be free to comment on trends and make further predictions.

Such pay-to-participate prediction market systems might also use a portion of their revenues for cash prizes. The prizes might go to the most successful predictors and/or good causes of their choosing.

Has any move of this kind been tried? A pilot project might be a good way to test reader interest and revenue-generating potentials.

Inspired by your cover story, I've tried to compile some variants of freeconomics I found in Korea, though I basically consider it as a kind of barter economy disguised as points, air miles, and sometimes a shiny new gadget. If you are looking for some Asian examples, this story would give you some food for thought.

Well, I believe that traditional printed newspapers, and perhaps printed magazines, are headed for some hard times. The internet has Most if not All of the information found in the printed (for a fee) media for free! I can find all of the current news I want on the internet for free, why would I purchase a newspaper, or a magazine? Although Online Auction sites like Our-Auction The New Free to buy, sell, and bid online Auction site and Ebay, etc.. have not hurt traditional auctions held in public buildings. So it is possible that The traditional printed newspapers, and magazines Might do all right, but common sense dictates that they will see at least some drop in sales, especially in these trying economic times.Our-Auction

Well, I loved the account of the failed attempt by Nyhedsavisen to conquer the Danish market, and caught myself thinking a lot about it. I also felt a growing unease with the purportedly proof that "Free" is dangerous per se. To me, this tale is the proof of the inanity of carrying a successful strategy into a new market without first identifying the explicit and (above all) the implicit assumptions on which it rests upon, and checking if they are still applicable in said new market.

In a very competitive market, I bet your competitors won't simply let you do your dance, watching from the sideline, without reacting as quickly as possible. Contrary to Iceland's tame market split between two contenders, the Danish newspapers had a history of active competition, and seven newspapers fighting for the pie. Hence the ingredients of the Danish disaster.

My analysis of the tale is that Dagsbrun's first mistake was to conclude that Denmark was the ideal landing spot for their doubly free newspaper. Did they choose Denmark simply because they speak a Scandinavian language? It seems obvious that Denmark was already a crowded market. The "doubly free" strategy started a price war, but basically even a newspaper with a traditional revenue model would have been caught in an uphill battle in the attempt of winning a share of the crowded Danish newspaper market - I suggest reading Lanchester's strategy for business, adapted by Yano.

Perhaps a more accurate description of this could be: the story of a business failure that was based on insufficiently questioned assumptions, with dire consequences amplified thanks to a "doubly free" business model.

Thanks for this post, looked at Morten Lund's as well.... sad and inspiring at the same time.

I just wanted to add a few thoughts. Since the younger generation in some markets with free sheets does no longer want to pay for news, newspapers face a battle to convince their readers to pay for the print or online version of their fare.

This is a tough battle, who will win?

As the above comments show, some free newspapers will survive (single or double-model) as long as they are backed by media houses (e.g., Netherlands, Denmark also Funen ;-), Switzerland) and they carve up the market (e.g., 1 publishes in the morning and the other in the evening - rest closed shop in Switzerland).

Unfortunately, while people may think about what their legitimate consumption model is (e.g., free downloads, e-news, etc.), free beats paying for content hands down. And yes, every time it seems people are willing to choose free (regardless of quality) over paid.

Are newspapers the dinosaurs of the 20-21st century? Revenues are dropping and the Kindle reader will not save them either from having to explore new revenue streams:

As co-founder of Nyhedsavisen and later partner with Morten Lund in the project I would like to add to your otherwise fairly balanced blog post that there was actually nothing wrong with the business model of the double-free newspaper but unfortunately, as we discovered, vehement competitors in the good old physical world can still produce insurmountable obstacles the FREE internet model doesn't have to deal with.

As Jon Lund (whom I by the way have never heard off) evidently has no insight into Nyhedsavisen's operations, I have to correct that we did in fact get the distribution to work impeccably after much hard work but unfortunately at too high costs - the decision by the Competition Authorities was frankly insane and a great example of how 100-year entrenched incumbents in a small country with language barriers can power-bowl any foreign newcomers - and this being particularly true in media being perhaps the most powerful industry of them all. Image selling a products when an entire nations news sources are aimed at killing you off as quickly as possible to the point where a front cover story in a national coverage newspaper was about how all the investor money behind Nyhedsavisen came from Russian mafia money (yes libel laws in Denmark are, like the rest of the socialist ideology, unbearably soft). Add to that the fact that our competitors each threw in $100m just to produce two copy-cat products with no intention of ever making them profitable - they were created purely to litter peoples mailboxes with enough newspapers to forever constipate consumers from free newspapers and to give away free advertising making it very hard to increase our advertising prices fast enough to survive.

All in all, free gone horribly wrong but I still maintain it was not because the free model didn't work - sometimes competitors can simply smoke you out.

Double free newspapers are done in a more subdued fasion where I reside. Instead of dailies, the newspapers do a variety of weeklies that have more local intrest, event schedules, and editorial content. It must be because this type of content is cheaper to produce because it is not so time sensitive.

I don't think "free" is necesarily dangerous, you just have to now how to promote something free and still make money. Like newspapers that charge for delivery of the newspaper, not the actual newspaper.

i was diagnosed with cancer, then my husband of 17 years walked out; thought it was all over., and could easily have sat in a car with a hose pipe. however, i thought about what i had, ie my children, my family - could you really let them down?

A friend just shared this link and recollecting your post on the future of newspapers, I thought it quite appropriate. Sometimes we have to go through the awkward stage of 'horribly wrong' before we go consciously 'right'. http://whatmatters.mckinseydigital.com/internet/investigative-reporting-in-the-web-era

FREE was available in all digital forms--ebook, web book, and audiobook--for free shortly after the hardcover was published on July 7th. The ebook and web book were free for a limited time and limited to certain geographic regions as determined by each national publisher; the unabridged MP3 audiobook (get zip file here) will remain free forever, available in all regions.